tv Street Signs CNBC December 4, 2012 2:00pm-3:00pm EST
dividend there >> you will be back with us again tomorrow. >> i will. >> thank you very much. pretty much does it for this edition of power lunch. >> we are up ten points on the average. s & p trying hard to cross into the green. nasdaq still negative. see y'all tomorrow. >> sue, thank you very much. street signs begins right now. these right, tie less, the gop sending a big message, hey, blue states, you re-elected the president. you pay the bills. how they want to raise money and why your mortgage interest deduction may be at risk. bill gross says this may not even matter. we still have way too much debt. bill cross is here with some investable ideas for you. plus, extreme hoarding, dividend edition and we unveil the one sector of the stock
market that nearly everybody agrees is a must own, man kim. >> hi there, brian. hello, everybody. get another slow day for the market, stocks moving between gains and losses. bob, i don't want to begin with the macromarkets. i want to begin with the retailers. yesterday, the s & p retail index hit a record high. today, not so much. >> i think that is a sign of a little bit bit of concern going on. show what you has been going on. a lot of the big retailers are weak today. comment specifically on gap but noted, for example that kohl's had very high inventory levels and a concern that might make the season more promotional and specifically affect gap. see it down 7%. other names weak as well a lot
of retailers down 1 to 2%. show you what the cracks in retail, think cracks in the consumer overall here but we have got short interest increasing. that hasn't happened in a while. the weather's been unseasonably warm. the comps in 2013 a lot tougher because we'd great first quarter of 2012. and the consumer may be a little bit more hesitant. mandy, along the consumer lines, did you see what darden restaurant also to say, quite surprise, they are very good at managing their company and they came out, said they were disappointed by the recent promotions they had seen and were basically down. >> how dare you question the power of the american consumer. thank you very much. the market does remain laser focused on the fiscal cliff, with just 27 days to go and less
for the official congressional session. president obama and john boehner making comments on the issue a short time ago and according to our deal meter, there it is, still only a quarter of the way there. we have got all sides of this story covered. john harwood live at the white house. eamon javers on capitol hill and the president's comments. >> the president gave an interview to our colleagues at bloomberg and said a couple of things. first of all, his priorities now trying to break republicans in their resistance to raising the top rate by some amount, a stance republicans have been consistent on. more revenue, question, not higher rates, he is insisting on that as the price of negotiating with him. and he said the reason for that is if you take all of what can be raised in revenue from deductions that is politically realistic, not trying to take away the mortgage deduction in the face of tremendous resistance from consumers and the housing industry, you can only raise about 300 to $400
billion, but i think that is a promising indication from the president because then if you take, brian, $400 billion in deductions eliminated, you take, say, half of the rate increase, it would go to 39.6 by the president, that would raise about $500 billion. you put the 500 together with the 400, you are starting to get in the revenue range necessary for a deal. so, there are hints of a compromise. both sides still digging in on their core principles. i think making progress though. >> what about a cut balance though? would it be 1:1, $2 in cuts to 1 in revenue? do we snow do we know of any cuts? >> yes, the republicans have proposed the -- raising the medicare eligibility age and applying a lower inflation adjustment to benefits and other programs. real spending cuts, significant. the president has some other cats and dogs proposals, taking money from providers, some
increase in costs for high-income beneficiaries you can the potential for the kind of spending cuts we are talking about p the administration counting in their $4 trillion argument, the 1 trillion that was saved in budget control act of 2011 and also some of the war savings. now, there are disputes over whether you can count things that are already happened or war savings. >> thank you, john harwood. some kind of revolt going on among the hard-core dig your hes in republicans that john boehner is caving. ammanoffers is live on capitol hill. how much has boehner alienated his own party trying to find middle ground? >> that is the big question up here on capitol hill today. speaker boehner walked by us a couple seconds ago, i asked him what he made of all this angst today on the republican side, the conservative side of the republican party, he just smiled and walked past our station here. did he not want to talk about
this. tell you what senator jim demint said, from south carolina, said today speak speaker boehnerers a $800 billion tax hike will destroy american jobs and allow politicians in washington to spend even more while not reducing our $16 trillion debt by a single penny that is an indication of a minirevolt up here on capitol hill among conservatives who don't want to see taxes raised at all. very uncomfortable with that offer yesterday from the speaker's office. i have been talking to staff privately here on capitol hill, some republican staffers say they wonder whether or not even all of the members of congress who signed that letter, along with speaker boehner, some of the rest of the republican leadership, could actually vote for such a bill were it to hit the floor here. negotiations are going on, the question is how strong of a hand does john boehner have to make some concession over at the white house without losing folks up here? now, tactically this demint statement and conservative
rebellion today could be useful to boehner, go back to the white house saying, look i can't go much further, see how outraged my guys are about this, man kim. >> indeed, walking a very fine line. thank you very much. mean time, shout world's largest mutual fund positioning its $1.9 trillion in assets ahead of the fiscal cliff? bring in bill grace, pimco co-cio and founder and also friend of street since. bill, always good to see you. >> thank you, mandy. >> do you think we need to get ready to say hello to an era of american austerity? >> i think we do even chairman bernanke in a speech a few weeks surgted the standard 2 1/2, 3% historical growth for a time would be lower around he attributed that to, you know, risk aversion and to some extent, to the hesitancy over the fiscal cliff. but we would suggest at pimco that there's much more to this than just hesitancy over the fiscal cliff, basically, we have
structural influences that speak to delevering, that speak to demographics, aging demographic, the boomers, that speak to globalization and technology, all of which has been labor and job unfriendly. so we think the united states is in a 1 to 2% growth environment going forward and investors should be used to. >> this >> is this whole thing a kabuki dance? you look at debt, the numbers going out, we are talking about, both parties are guilty of one thing, say they want to cut and cut that frnlts basically, the government has been running in balance.
we are bringing in 15% of gdp. speaking one for one, that subjects that revenue should come down to 20 or 19. there should be a one for one give and take going forward between republicans and democrats. >> if you think we are headed for a difficult time, you know, as you say due to structural economic headwind, when and how do we pull out of it? >> with difficulty. i think policy you whether monetary policy or fiscal policy has to be directed toward -- toward growth. yes, that's mantra from both republican and democratic sides but basically, growth challenged, taken our growth from us in terms of job creation, we need to have policies that fight back, that
either devalue the dollar relative to competition so our exports and manufacturing becomes more productive or from the standpoint of infrastructure so that we rebuild what we used to have in terms of an infrastructure that allows for productivity going forward. >> if we could add 1% a year to gdp for the next decade, talking about trillions of dollars in extra growth, much more that we are talking about in tax increases or in spending cuts. because politician both sides are talking mostly about taxes and cuts, do you get the sense, bill, that washington, d.c. has completely run out of ideas on how to grow the economy? >> i think they have. and i think economists have as well. we have been looking for the new canes for several years now. some suggest new spending, less spending. that basically has been fought out in euro land as well.
to some extent, has been challenged because euro land is still in a recession. yeah, i think the world is basically in conflict between, you know, emerging and developed economies. the developed economies basically are old and basically levered ant developing economies are basically young and unlevered, without a consumpt n consumption-based economy. this clash of economies basically, mohammed al arian wrote a book three years ago, the title "when worldless collide," basically the worlds are colliding and difficult for policymakers to see how to resolve the situation. >> what san investor to make of all of this then, bill? what would you say your picks and pans to be able to still invest your money wisely? >> investors, if they are looking for growth and if they are looking for risk and that speaks to equities and other types of investments that are
less safe than bonds, you know, they should look to the developing markets, mandy. that's where the growth is, where the underdeveloped basically fiscal and balance sheets are. and that's where they are going to experience higher returns. you know, if they are looking for safety, you know, they should look to the developed world to what we call the cleanest dirty shirts, to some extent to tips and to other safe assets that produce a low return, yes, but a safe return. so it's a developing risk and a developed derisking type of balance sheet. >> we are going to on the housing angle here, we are worried maybe some of the spending cut ideas or tax revenue ideas may come from mortgage interest tax deducti deductions, bill, a bit later on the show, are you fearful of housing or hopeful on housing? >> hopeful of house. just done an economics forum where that perhaps along with the cheapness of natural gas and
energy in the united states and the future development of it, you know, are the two main proponents of growth going forward and so, house, you know, on a cyclical basis, not a longer term basis, i speak to the next one to two years is definitely a gross proponent in the u.s. economy. we are looking for, you know, u.s. growth of 1 to 2% and primarily because, you know, housing is now in an upswing as opposed to a down swing. >> we have a graphic for our viewer ares, thanks to our team for getting done quick, i just came across it, bill, the average home size in the u.s., not amount biggest in the world but gone up 30% since 1973, the average new car is 30,000 dollars. college costs out of control but never how anything how incomes have gone up. if anything, stayed the same or gone down. how the hell are we affording all this stuff? >> that is a great point. i would suggest and point out, in terms of evidence, the corporate profits as a percentage of gdp are at historical highs, 12 to 13% of
gdp. what you suggest in terms of wages as a percentage of gdp is correct. for the past 10, 15, 20 years, real terms, wages have not gone up, corporations in effect, been eating their seed corn, denigrating their consumer base and difficult going forward for them to sell product to a consumer base that has very little spending power. >> we are paying very high cost for keeping up with the joneses, respect aren't we? thank you very much. breaking news from jane as well as, a big breakthrough in the strike that has shutdown america's busiest port, jane? >> we sure hope so m, mandy. mayor via rig goer via rig goes from a trade mission, both sides agreed to federaled me yation.
the strike will continue in the eighth day the clerical workers, despite being offered a generous pay package and generous package say their johns are being outsourced. shipping industries which run the terminals say they don't want to be forced to fill the job with union workers if they don't need to 40% of all container cargo coming in and out of the u.s. comes through that port. it is now trickling in and out. again, it won't affect stock shelves before christmas, but what we are hearing now you are going to see it after christmas for those afterholiday sale if they don't resolve this shortly. back to you. >> thank you very much. appreciate the breaking news. all right, on deck, you fill in the bank, pay back is a -- how much letters that was?
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bit with a columnist at the american enterprise institute and a cnbc contributor around michael lipped, policy director of the economic program and co-founder of the new america foundation. we know this everybody in dv has extremely long titles not tv friendly. jimmy, start off with you, because if you look at the gop's plan and the raising of revenues or taxes by the reduction of deductions and then you dig into the states where you get the most itemized deductions, whether mortgages, local, property, state taxes, he is -- the gop are going right after this the blue states. >> would you think. exactly right. particularly with the deduction for state and local taxes. talking the high-tax blue state, massachusetts, illinois, california, ones that went overwhelmingly for the president. >> they voted for the guy, i live in one of those states we get what we get, we don't get upset. >> think both sides should like
it republicans should like it you are going after the blue state bus talking about upper income people for a great deal and the president wants more of those upper income people so the president should embrace -- embrace that plan. now you the mystery a little bit is why republicans don't blue they don't want to see taxes go up on anybody, maybe not john boehner, seems what you said earlier, jim demind mint and other folks, the rank and file don't. >> michael, a brave man, you differ from the opinion of our good friend, brian sullivan here. you say that the gop plan might adversely affect the red states more than the blue. >> the state and local property tax deduction would hit the blue states. other elements would affect republican voters in the red states. the home mortgage interest deduction generally affects small business owners, professionals, might call the small rich.
on the spending side of the cuts in medicare, by raising the eligibility aim would fall heavily not only on democratic-leaning black and latinos but heavily on the white working class base of the republican party. >> well, michael, listen up, push back a little bit, i do get your point, the mortgage interest deduction enjoyed by all. say they reach a deal, you can deduct $1 million in mortgage interest, right, mortgage $1 million, you can deduct the interest. if they cap it somewhere around, say they dial it down, don't eliminate it, to $600,000, $500,000, that's going to hit the states where homes are the most expensive, which tends to be where incomes are highest, boston, new jersey, new york, california. >> that's right. look at their proposal as a whole. if you look at their preposed cuts and discretionary spending to the extent it is agriculture and military when it comes to
discretionary spending cut us in general, the economic policy institute commit estimated that if you had a cap of 20% federal spending, which would entail deep discretionary spending cutses states that suffered the most would be the ones in the south and the great plains and mountain state, traditionally republican areas. >> jim, tend of the day how much of the gop plan is going to be taken up anyway? >> i think certainly, john boehner said something really amazing, which is he agreed to hire taxes scored scat s.a.t.ically you what jim demint was screaming about. you will have to come one
entitlement cuts and ground by ground, inch by inch, rate by rate, fight for those rates so they get something they can bring took their own members. >> jim, you got kids, right? >> many of them. >> you know how it s don't you think this is how it is going to work? you the kid says, dad, can i have ice cream? no ice cream, not one bit. pretty soon, the kid has 2 1/2 scoops of chocolate syrup, may not have gotten the four scoops they ask for, not going to happen here. >> not in my house. no, we have austerity in my house. there's no -- there's no ice cream. there's no giving n i'm a hard liner. i don't think washington's quite as tough as what i am. >> glad i'm not growing up in your house, jimmy. >> wow. >> i give in to anything. and everything. just putting it out there >> wow. >> jim, michael, thank you very much for joining us. the meantime, we are calling this extreme hoarding, dividend edition, because more companies are paying billions and billions in special dividends. robert frank, by the way, who is getting the biggest payouts here? >> mostly ceos and company founders. more than 110 companies anumbers
onned special dividends in the fourth quarter, three times last year's fourth quarter, all aimed at beating that potential tax increase on dividends. that tax now 15%, scheduled to go up to 43.4% on january 1st. now you companies have doled out more than $22 billion in special dividends this quarter. that's savings up to $6 billion in taxes. three of the biggest paydays will go to sheldon adeleson, tom frist and larry ellison. together, they will get $1.75 billion checks before christmas. and their tax savings there could be more than $490 million. so, what will they do with all this money? mandy, as you said, they are hoarding it. it is going into money markets, treasuries, some real estate but private bankers tell me it is not going into stocks or holiday spending, so it's not creating jobs. they are really just moving that money -- that income from 2013 to 2012. >> what does it mean in terms of the landscape next year? what is the impact on the economy?
>> for the government, the biggest impact n 1986, we'd similar thing, capital gains went from 20% to 28%. what happened is capital gains collections doubled in 1986 and then fell by half the following year, we can expect our government will have more than expected tax revenues this year and next year, when taxes go up, everyone will say, see, the tax hikes didn't work, we actually collected less revenue. and so the danger is we build program of this year's revenue, forecast base on this year's tax revenue and fall short next year. it could impact spending this money is not out there not generating jobs, not buying things or, you know, building things. >> got leave it there great stuff as always. thanks very much. coming up next, flu fears starting early this year. why this flu season could be the worst in years. and later on, iran stays shot down an american drone. the navy says no you didn't. either way, our own phil lebeau has firsthand experience with a small drone playing a big role
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we are keeping a very close eye on some of the biggest flu vaccine players why? well, the center for disease scroll out with a warning, the flu is offs to the earliest start in nearly a decade and you it could abad one. some school systems in kentucky and tennessee have just shut schools down because of an outbreak there. so let's bring in nbc's tom c t costel costello. you have been on the story. >> we have tennessee and kentucky, monroe county in kentucky. the bottom line is they have seen a jump in flu cases in five southern states. those are alabama, louisiana, mississippi, tennessee and
texas. and because of that how early they are seeing this jump, we don't usually see it peak until january or february. the concern is the severity of this flu it could take a toll, especially on the he had elderly. they are saying, however, we think we have got a good match on the vaccine this year compared to years past. remember back in the 2003/'04 year, 48,000 people died from the flu. it was a bad year around thought the vaccine wasn't a good match. normally, 24,000 people die every year from the flu. that seems astonishing. 200,000 people are hospitalized every year. chances are you know what the symptoms are we will go through it quickly four, fever, severe
aches, runny nose, congestion, a cough, even vomiting and diarrhea and most importantly for the children and the elderly, severe dehydration. that can cause people to go to a severe state and to the er. they dished out 112 million vaccines, a third of the population already vac sip nated, so the thinking is if it's a good match, that's an awfully good head start. >> good that it's a good match. my quick question here is if you have not got your vaccine yet, is it too late? are they gonna run out? >> nope. nope. got plenty and urging everybody to get it, if you have a child who is at least six months or old, get them vaccinated or two if you get sick, don't come to work and don't send your kid to school. >> understood. thank you very much. tom costello. up next, straight talk. plus the one sector of the market people say you must own. how the fiscal cliff maybe the single biggest threat to house. tell you how, coming up. and we can save you 10% on ground shipping over the ups store.
counteroffer for metro pcs. sprint is focused on closing the soft bank rather than making a pcs bid. met rose pcs agreed to be taken over by deutsche telekom in october and then sprint a deal for metro pcs, all convoluted from a regulatory perspective. david faber said same thing weeks ago but the stock moving on the that reuters report. >> big lots the next one up. >> rising despite the ceo leaving, right? lower than expected loss and boosting of guidance, a big day for big lot, up over 12%. it was, at one point, may still be, the best performing in the s & p 500 this year. the ceo says they are well positioned for christmas. >> good. good to hear. >> i don't know what that means r they under the tree? >> maybe. doubt it. meantime, we are looking at apple tanking today. 10% to the downside. >> exactly down 10%. you are more of a medieval person, olive guard opinion, red lobster, they have been struggling. get this.
darden, which owns those restaurant chains, sees earnings as much as 71 cents below current expectations for fiscal 2013. ceo called the quarter disappointing. same-store sales fell overall, retool the promotional strategies, famous for the all you can eat shrimp for like 9.99. not working like they hoped. >> francesca's big win today, an upgrade r. >> jeffreys a stock up to a buy to a hold. >> pep boys not pep pill. >> manny, moe and jack miserable. the stock or the company a third quarter loss, recorded big charges, same-store sales fell. 13 cents a share loss.
we like to leave people with bright spots. glass half full. the ceo said the margin's entire sales are improving after the 19 straight months of declines. that's literally all i could get out of that. >> better than nothing. >> the most positive -- >> bright with a chance of showers kind of bright spot. kayla usual shirk i believe you have news on jpmorgan and outlook. >> smoke signal, insight on how jp morning, the largest u.s. bank by assets, expecting to perform the fourth quarter and beyond. bronstein, first of all, reiterating that banks still hit by low rates and high regulatory costs with jpmorgan specifically seeing a $400 million hit to profit in 2012 and 2013. can't make as much money on loans and deposits.
jpmorgan set to see as 600 million hit to profit next year from the reduction of real estate loans as the bank continues to move to write more new mortgages with origination of those mortgages expected to be up in q 4, according to bronstein's presentation. the current quarter market's revenue trading and underwriting and the like, expected to be nearly 260% lower than the third quarter of this year, compared to the fourth quarter of last year, volume all but dried up, good year-over-year, fourth quarter compared to third quarter, the markets revenue down, banks incurring steep legal costs. litigation costs will stick around for a while unfortunately. >> bottom rain, guess who wins in all of, this the lawyers. thank you very much, kayla tausche. okay. we are in the trench he is of the holiday spending season that can only mean good things for the likes of credit card stocks. joining us now greg smith, managing drerktd -- director at stone ag the stocks are 52-week
highs is it too late to get in? >> we don't think so very good growth ahead. you look global labor day the fact that 80% of the world's transactions at the point of sale are still cash and literally half of the world is still on bank, that american there is a very, very long runway of growth for visa and master card ahead. >> don't have to worry about the fiscal cliff, people get struggled for money, taxes go up, the last thing they will pay is the credit card, greg. >> that is fair. don't forget, even if we fall off the fiscal cliff, still have to go to the grocery store, still do your every day spending, which is increasingly going on cards. this is also a little more of a u.s. issue. take master card, for example, 60% of the revenues come from outside of the u.s. i think you have to take a broader per smektive when looking at visa and master card. >> you like both the stocks but i believe visa slightly nudges out master card. why? >> yeah, over the long term, we
do prefer visa a little bit a little larger. think they incrementally have a little bit better brand. there is an opportunity for them to buy back in their european division, which we think would be a positive transaction for earnings. not sure when that's exactly going to happen but that's something down the road. also, some outstanding litigation, there's this big merchant litigation against both companies. visa is less exposed than master card. but it's a tight call between the two. we like. >> are balances going up again, greg? you are right. i see a lot of people, grocery store, used to write checks or use debit now using credit cards, sure they tell themselves they will pay it all off at the end of the month. my guess is they don't. >> well, you know, we actually don't -- we track the transactions more than anything 'cause visa really doesn't make money off the balances, they make money off the actual transaction but to address your question, debit is still growing much faster than credit. so, i still think we are seeing sort of what i call healthier spending but i wouldn't be
surprised to see those credit balances ticking up, certainly with all the holiday spending. >> a lot of companies handing out goody bags in the forms of special dividends these days, either of these companies candidates for that, greg? >> you know, yeah, that's good question. i think on paper, they are. they have strong balance sheets. they have a significant amount of cash on their balance sheets today. they could take on leverage to pay a big dividend but my bet is they will no i think both companies favor share buy backs, very active on that front, we are not expecting t they do have the capability if they chose to >> thank you very much, stern agee's will greg smith. >> i like your goody bag thing. label special dividends from now on stock swag. >> a contest. >> got redo this contest. >> we will get to that. >> that was a whole other -- not a goody bag. >> a baddy bag. street talk bonus round because we know you love it. give you some more over the next few days, we are taking a very close look at middle market companies that could be on the
brink of a breakout right, brian? for example, to kick things off, came up with a few publicly traded names to keep on your radar. for example, linkedin, dunkin' donut s, pandora and annie's a few maims in the middle mark that's could break into the big leagues. >> says who? >> i don't know. who? >> names that could break out. i could break out. i could break out of here, run down the road screaming. >> break out, too much chocolate >> dig into those more. dig into the dunkin' brand. >> middle market companies generally is revenues between 50 million and $1 billion and employ about 40% of america's workforce. >> how do they break snout still need the metrics. next up, a tore of a small drone at the center of a potentially big problem for america. later on, will the cliff crush the american dream? why the president's plan could punish anyone who owns a home. the fight next. [ male announcer ] this is joe woods' first day of work.
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the depresses plea diction, much more fearful than the fiscal cliff? famed fund manager jeremy grantham says his news on the road to zero growth. another side of that story and deal with bait the issue coming up. also, the art of negotiation, we will hear from somebody who says lawmakers in congress should take a page out of wall street's book to reach a deal on the fiscal cliff. and all-state ceo thomas wilson joins us to explain how a decline over the cliff would affect the insurance giant. maria and i will see you at the top of the hour, the annual chris mastery lighting at the new york stock exchange today and eye vanka trump will be along to help us out with that. >> wow. some of her own crystal there >> she is very beautiful, i have to say. >> i could say that, too, i suppose. but i won't. iran says it shot down an american drone in the gulf. the navy is saying no. all of our drones are accounted for. what we do know is what kind of drone we are talking about. phil lebeau has experience
actually with launching one? were you in the cia, phil? >> i wasn't in the cia, but i have launched, still -- >> you have to tell us. >> the scan eagle drone, don't like to call at a drone at boeing, made by boeing, subsidiary in oregon make it unmanned aerial vehicle. essentially, the navy, the intelligence, military, they have been using the scan eagle for a number of year, ten years they have been use it. costs roughly $100,000. here is the deal with this scan eagle it stays aloft for about 24 hours, continually circling over, monitoring and feeding back thermal images and their mom. used successfully a number of times and a number of missions. the interesting thing about this drone, set it up and launch it in minutes did it when we were out in the high desert in oregon, weighs less than 50 pounds, chromed by a mobile control unit that is nearby. it always has contact. there you can see it looking
down on us after we launched it there for boeing, this has been an incredibly successful drone or unmanned aerial vehicle and we are going back ten years, back to when they first started producing it the scan eagle. but guys, the bottom line is this. even if the iranians were to capture one of these scan eagles, you know, it's not impossible that these things can be captured at some point. they fly around there until they are snagged or if they run out of gas, then they are gonna crash somewhere. i find it interesting the navy says we have not lost any of our drones. >> phil lebeau, thank you -- still interested why he launched one of those things. get into that later. didn't dig in enough of that. >> he was a spy, he couldn't tell us anyway? >> the rule of being a spy, if you ask somebody if they are a spy, they have to tell you. >> do they? >> no. if you own a home, you might be worried that you will lose your mortgage interest deduction if we go right over the cliff.
the president says yeah you might want to be worried, tell you why, coming up. first, today's rewind. it was 21 years ago today, in 1991, that associated press correspondent terry anderson was released from lebanon after almost seven years in captivity. sfx- "sounds of african drum and flute" look who's back. again? it's embarrassing it's embarrassing! we can see you carl. we can totally see you. come on you're better than this...all that prowling around.
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it seems like no matter what the fiscal cliff deal eventually comes through as, the high end of the housing market may get hit. here's why. either incomes on the people buying those homes is going to go up, or there's a chance the mortgage interest tax deduction could be capped below at what it is now effectively raising the price of a mortgage and possibly lowering the value of a home. yesterday when the president was answering questions on twitter, one american asked just that. emma robertson tweeted, quote, as a homeowner, i worry
deductions for homeowners will go away. the president responded that middle class deductions will get hit. if that happens, it could derail our fledgling housing recovery. >> anything which really flexes downward the deductibility of home mortgages is catastrophic to the recovery. >> is he right? joining us, edward, a law professor and the former chief of staff at congress's joint committee on taxation. edward, do you agree? will it hit? >> absolutely not. it will have some modest effect, but the fact is that interest rates jump up and down all the time. right now we have home mortgage interest rates at historic lows. i just refinanced at 3% plus. if interest rates go to 4.25%,
nobody would describe that as a catastrophic hit to the home mortgage market. that might move the cost of housing one percentage point or so. >> i wonder whether -- and when you think about buying a home, a lot of it is psychological. do i feel i'm in a position to do this? if we limb nate or cut the mortgage deduction, it might be more psychological. >> you're exactly right. there's a big psychological impact for existing homeowners of having this deduction removed. for home buyers making a decision to buy a home, i agree with the other guest. people buy homes because they believe homes are undervalid or they want a wonderful place to raise a family. not because they're getting that extra $500 in annual tax savings. i'm not sure it will have any -- >> wait, $500 in annual tax savings? no, no, no.
how about $500 a month. >> well, for jumbo mortgages, yes. >> here's my scenario. i did the math. if you have a $1 million mortgage. i know that seems crazy to a lot of people. come to new jersey, new york, massachusetts, san francisco, whatever. let's say they reduce the cap to $500,000 to $1 million. if you're buying that, you probably have an effective tax rate of 23 to 25%, which is about $6500 a year, $500 a month. >> a big impact to the wealthy homeowners. you're talking about whether this will have an impact across the market. on the average, it's only going to have an impact of about $45 month in tax savings to the average homeowner. that's not enough to effect people's decisions to buy. even for the super wealthy, $65,000 a year, we're looking at whether that amount was going to affect their decision. i'm not sure it will overall. >> you know, earlier on, brian threw out a fantastic stat where
it was said incomes over the years have either stayed the same or gone down but houses have gotten bigger and bigger. if we get rid of the mortgage deduction, might it force us, however painfully, to live within our means more? >> exactly. the fact is that the home mortgage interest deduction is a subsidy that all of us pay to some of us. i live in california. by definition, i have a small house and a big mortgage. everybody else in america is helping to subsidize that by virtue of giving this deduction, which reduces my tax liability, in the form of the home mortgage interest deduction, in the form of the property tax deduction, and also the capital gains exclusion. if we have all the money in the world, we might continue that subsidy. the fact is we don't. if you add those three subsidies up, those three subsidies will cost american taxpayers about $750 billion over the next five years. that's an extraordinary subsidy
at a time when people are talking about cutting food stamps, which gives an individual $4 a day on which to live at a time when we're talking about cutting early childhood education. if we're going to invest in america, frankly, i'd rather invest in america's children than in my overpriced home in california. that's the choice. >> on that note, edward, peter, thank you very much for weighing in. >> i don't disagree with them. canada has zero mortgage interest deduction and a stronger housing market. i don't disagree. coming up next, we're ordering up a grand slam wedding.
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